Minyan Mailbag: The World As We Know It
Think about it-we're at all-time highs across the board but the rich are getting richer while the once noble middle class has been squeezed at the pump, through the educational system and at the supermarket.
I have been a Harrison editorial voyeur for some time. I first started reading you on "The Street" and followed you to the 'Ville.
I have been reading and listening, generally in agreement with you for the last six years. I was heavily influenced by the likes of Jim Rogers, Marc Faber, and James Dines as I regrouped in the aftermath of the NASDAQ implosion (I took it like a man, albeit a naive and much poorer man).
The tech implosion created a knowledge vacuum which became filled by three beliefs that I thought would paint the future: 1) The dollar is doomed due to America's horrible fiscal irresponsibility and Asia's turn at the helm. 2) The time for commodities is now since 20 years of decimation had created massive underinvestment. 3) We are likely at Peak Oil based on Simmons' research. I employed these thoughts in 2002, and hence, the portfolio has done okay. Those tech stocks never recovered, but I have.
I am writing to you because I have wanted to share a thought which I have had for some time. I think we may be witnessing a liquidity boom with no historical precedent. We may see localized corrections and we may continue to see across-the-board inflation, as we are now, but it might occur without massive equity corrections.
People are going to wake up after five years of 4% raises and realize that they have less disposable income. Stocks may rise in synch but they will underperform when adjusted to inflation. If this scenario plays out, commodity prices will rise to levels which are currently unimaginable.
My Father, who is 78, and I were recently chatting about his Father (who passed away almost 20 years ago). My Dad mentioned how silly it was that his Dad was adamant about the gold standard.
What a song, what an anthem!
Anyway, thanks for Minyanville and all who are part of this community.
Thanks for the kind words and continued Minyanship. A few thoughts, Random Style, as I chew through your thoughtful note:
- The liquidity boom you speak of is something we've been talking about for years, although I've clearly erred in not grabbing my surf board and riding the wave as I might otherwise have. While the powers that be no longer publish M3, those in the know estimate growth at 14-15%. That's the primary reason the dollar has taken it on the chin (-30% since 2002). The more money the US publishes, the greater the supply and lower the value.
- The long-term secular trend for the dollar is likely lower, as you suggested, but as much of the world's eye-popping debt is denominated in greenbacks, we must be on the lookout for a counter-trend rally (as debt is paid down). IF that happens-IF the dollar catches a sustainable bid-I think that'll prove to be a very strong tell that asset classes will pfffft across the board.
- I agree that a seismic power shift has already begun and I touched on this in my recent China column. The wealth transfer via asset accumulation appears to be a logical progression, particularly when viewed through a dollar-denominated lens.
- I agree in your commodity thesis and have vibed on it for some time. There is inflation in things needed to power, educate and feed the world and deflation in things we "want." There are two caveats, however. First, if and when China coughs, this complex will bear the brunt and gains (at least to date) might be relative rather than absolute.
- Still, I stand by my thought that, as sectors, energy and metals will assume a much higher weighting in the S&P with the former eventually overtaking financials as the top dawg (as it once was).
- I disagree that we are in a new paradigm that will exist without massive equity corrections. That mindset is ingrained and conditioned but it's exactly that train of thought that will make the sell-off more powerful and painful than it might otherwise be. Everyone-and I mean everyone-is conditioned to buy dips.
- I believe economic figures and statistics are being increasingly skewed by the "haves" and are not reflective of the overall state of affairs. Think about it-we're at all-time highs across the board but the rich are getting richer while the once noble middle class has been squeezed at the pump, through the educational system and at the supermarket. So, in many ways, I think people have already begun to wake up, albeit slowly. When they do-when they're fed up-the all important psychological metric will shift. And that, my friend, is the Fed's biggest fear. Credibility.
Anyway, I hope this helps. It's time for me to hop the fence and join the Buzz. Thanks again for the continued Minyanship and I look forward to shaking your hand one day.
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